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Egyptian army’s economic empire: Unidentified market share yet high impact - Daily News Egypt

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Egyptian army’s economic empire: Unidentified market share yet high impact

Egypt hopes to export fertilisers through a new army-owned factory

With the recent presidential announcement of establishing a factory of fertilisers, to be supervised by the armed forces, questions have been raised regarding the army’s role in the economy and their repeated involvement in the economic scene.

army graphLast week, President AbdelFattah Al-Sisi approved the establishment of a phosphate and fertiliser factory complex, supervised by military-owned El-Nasr Company for Intermediate Chemicals.  The complex will include nine major factories with a production capacity of 1m tonnes per year of phosphate and compound fertilisers, Di-Ammonium Phosphate (DAP) and pure and commercial phosphoric acid.

The goals of the project were said to be contributing to meeting the fertiliser needs of farmers with an appropriate cost, increasing Egyptian exports, achieving the desired increase in agricultural production and creating social and economic benefit through employment opportunities.

This is not a new sector for the army; in December 2013, local media reported that the Egyptian army, in partnership with the public sector, will establish a fertilisers factory in the Suez governorate, with $600m in investments.

Chairman of the Egyptian Chamber of Chemical Industries Sherif El-Gabaly said the army’s new factory will be of “benefit” to the market, expressing hopes that the factory can export its production in the future.

Regarding whether the factory’s production will affect the price of fertilisers in the local market, El-Gabaly, who is also the chairman of Abu Zaabal for Fertilisers & Chemicals Company, said the armed forces always sell at market prices, not lower prices “so the factory will not negatively affect the market”.

In the same speech, Al-Sisi declared that the armed forces will cooperate with concerned government bodies in order to rationalise the prices of essential commodities and make them available to citizens.

He added that concrete action will be taken in this regard by the end of November. The president, however, did not clarify what type of action will be taken.

Army’s economy is a “national security” issue

Political economy scholar at the Carnegie Middle East Centre, Amr Adly, said the Egyptian military has its own parallel economy, as they have companies in each sector. “However, they don’t have a dominant share,” he said.

Commenting on the new fertiliser factory, Adly said the military already owns a fertilisers factory in Al-Arish, North Sinai, which produces a low share of the fertiliser market in Egypt.

“The army owns fuel stations and hotels, yet their market share is negligible,” Adly added.

The official announced numbers reveal that the army contributes 1% of the GDP; however, other analysts believe the military controls between 5% and 40% of the economic activities of the country, while their activities are untaxed and unaudited.

The military, which is said to be the largest in Africa, has repeatedly said they do not influence the economy in any way. “The Egyptian military does own several factories and companies, but their purpose is developmental rather than for profit,” they said in late 2013.

Disclosure of the value of the army’s economy is deemed a “national security” issue, but the most recent official announcement on the annual revenues from the armed forces’ economic activities was in mid-2012, prior to the first presidential elections after the 25 January Revolution, when then-deputy defence minister for financial affairs General Mohamed Nasr said annual revenues from military businesses are at $198m.

The Egyptian army is said to control the infrastructure of the country and land ownership. In February 2014, the Egyptian arm of UAE’s construction company Emaar Misr announced that it paid EGP 72m to the armed forces to “modify the conditions of the units affiliated to the armed forces in the Uptown Cairo project area”.

The company also spent EGP 60m to construct alternative military facilities in return for using the western part of the land of Uptown Cairo. In order for Emaar Misr to continue working on the project, it had to sign a cooperation protocol with the Ministers of Defence, Investment and Local Development.

Gate of Ain Sokhna, established by the Egyptian military Photo public domain
Gate of Ain Sokhna, established by the Egyptian military
(Photo public domain)

Days before the 30 June uprising in 2013, which would, under the leadership of the military, overthrow Islamist president Mohamed Morsi, the armed forces completed the construction of a sports resort, equipped with a stadium hotel, bridge and tunnel, near New Cairo.

The construction of the resort took two years, which reflected the feeling at that time that the armed forces has the ability to conclude projects in a relatively short period of time. Information on how the piece of land was converted into the project, the cost of it, or the annual revenues remains unknown.

Announced activities of the armed forces

With around 2 million personnel, the Egyptian military owns companies in different fields, such as cement, fertilisers, televisions, refrigerators and food items. The Egyptian army owns hospitals, hotels, clubs and child-care centres.

As being knows for their ability to conclude construction in a short period of time, the armed forces re-entered the scene in 2011 when it rebuilt a church in Etfeeh village in Upper Egypt that was burnt down in a sectarian attack in March of that year.

The armed forces constructed two vital roads, the ring road and the Cairo-Sokhna road, in addition to developing the Cairo-Ismailia road and the Cairo-Suez road. It also built eight bridges in different governorates, and three axes.

Moreover, the military has constructed an airport in the Sohag governorate in Upper Egypt and a port in Hurghada.

With regard to sports projects, the armed forces developed stadiums and sports clubs for the benefit of the Ministry of Youth and Sports. It also built several hospitals and government-owned clubs, educational institutions and tourist spots.

According to Adly, the market share of fuel stations owned by the army is approximately 4%; meanwhile, other government-owned fuel stations account for 54% of the market.

Biscuits, associated with the Muslim Eid Al-Adha, made by an armed forces-affiliated entity (DNE Photo)
Biscuits, associated with the Muslim Eid Al-Adha, made by an armed forces-affiliated entity
(DNE Photo)

The military takes steps to economically aid citizens

At times of high food and transportation prices, the Egyptian military took steps to alleviate the burden. Following the ouster of Morsi, the armed forces, in cooperation with the Ministry of Supply, dispatched in November 2013 trucks to sell vegetables, fruits and legumes at discounted prices throughout Cairo.

In July 2014, Minister of Defence Sedki Sobhi issued orders to private army outlets, the National Service Authority and the General Services Authority, to slash food prices in bulk, following the increase in prices of food items that occurred when Al-Sisi’s first government decided to cut budget spending on energy subsidies in the FY 2014/2015 budget by EGP 34bn.

Transportation fares were also affected by the reduction in energy subsidies, increasing by 35%-50%. In response to this, the armed forces transportation authority also dispatched buses for citizens at a discounted fare.

Starting in 2013, the armed forces began to sell biscuits, associated with the Muslim Eid Al-Adha, at low prices compared to those offered in the local market. This fuelled anger among dessert and patisserie shop owners in the country, which started to incur losses due to the “unfair” competition.

Amira Zidan, 47, a resident in the Haram district of Giza, said she trusts food items sold at armed forces outlets. “I also know that the money I pay is directly going to the army of the my country,” she added.

However, Ahmed Sobhi, 56, an engineer, believes: “It would be better of the army focused on their main job, which is securing the country’s borders, instead of wasting effort on activities that can be undertaken by the state or the private sector.”

The Engineering Corps supervised the implementation of the New Suez Canal project (AFP Photo )
The Engineering Corps supervised the implementation of the New Suez Canal project
(AFP Photo )

Projects supervised by the army

In March 2014, the armed forces, in cooperation with Emirati construction company Arabtec, announced plans to construct 1m residential units for low-income youth on land provided by the armed forces. The contract had marked one of the largest construction initiatives in the Arab region in the past three years.

The project, announced by Al-Sisi, who was defence minister at the time, falls under the umbrella of the “For the Egyptian Youth” initiative. The initiative, which Al-Sisi launched prior to announcing his presidential campaign, aims to address a shortage of low-income housing for young people. The $40bn project was planned to be built at 13 locations across Egypt, with the first homes to be delivered in early 2017.

However, within one year of signing the contract, head of the Armed Forces Engineering Corps General Kamel El-Wazir announced in March 2015 that Arabtec does not agree with the conditions of the project’s conclusion.

“Our conditions were that any investor who wants to enter the Egyptian market has to bring his money from abroad, not from Egyptian banks,” El-Wazir explained at that time. Following up on the project shifted to the Ministry of Housing, instead of being directly supervised by the armed forces.

The Suez Canal Axis Development project was another clear example of the army’s involvement, but this time it was a national project with a history dates back to the Mubarak regime. The project resurfaced under Morsi, when he announced in March 2013 that India will be Egypt’s partner in the project; however, then-defence minister Al-Sisi delayed the project until its terms could be studied, claiming that it threatens national security due to being near the Suez Canal.

After Morsi’s ouster, the armed forces amended the project’s plan. The project entails extensive development plans, including: the construction of four new seaports in the three port cities surrounding the canal; a new industrial zone west of the Gulf of Suez; and a technology valley in Ismailia.

In August 2014, Al-Sisi launched the project, along with the New Suez Canal project, referring to the expansion of the existing canal, where he assigned the armed forces-affiliated engineering corps to supervise its implementation.

The president called on them to conclude the project in one year instead of the previously scheduled three-year timeline. Al-Sisi attributed the shortened time period to the “the deteriorating security” situation, which could threaten the project.

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